According to one recent report, 65% of U.S. businesses plan to expand their workforce in the next year. If you’re thinking about growing your organization’s geographic footprint, extending your operations into a different state can help you get there. When considering new locations, do you have your sights set on the Sunshine State? Doing business in Florida can be a great way to attract new clients, connect with partners, and increase your workforce. Before you can set up shop, there are a few legal steps you’ll need to take, first. This process is called foreign qualification.
It’s not overly difficult, but it can get complicated if you don’t know what to expect. Today, we’re breaking it all down and sharing everything you need to know.
Foreign vs. Domestic Business Status
At first, the term “foreign qualification” might sound like something you only need to worry about if you’re expanding your company globally. However, in this case, it doesn’t mean “foreign” only in the sense of operating outside of the United States.
Rather, this is a process that every business entity must complete if they want to operate in a state or country other than the one in which they formed or incorporated their business. This includes US entities outside of Florida and Non-US entities.
While expanding outside of your home state is considered entering “foreign” territory, the state you’re currently in is called your domestic state. Only in the state where they were formed or incorporated are corporations and LLCs regarded as domestic. For instance, if you establish a limited liability corporation in New York, the LLC is referred to as “domestic” there and as a “foreign LLC” in all other states.
Why Is Foreign Qualification Necessary?
Doing business in another state isn’t as simple as just driving a few hours in a different direction and opening up your doors. Once you’ve formed or incorporated your business, you’re bound to your home state unless you complete the foreign qualification process.
Put simply, this is the act of reaching out to another state’s governing body and requesting permission to do business there. Let’s take a look at a few reasons why this is a necessary part of U.S. business expansion.
Describes Your Business
Also known as foreign registration, foreign qualification gives you the opportunity to tell another state basic facts about your business, so they know what you do and what your intentions are. It’s a mandatory process that any company considering business expansion must complete.
Some of the information you’ll share on these documents includes:
- The legal name of your business
- Your business address
- The name and address of your business’s registered agent
A registered agent is an individual or company designated as your corporation or LLC’s official point of contact to receive official communications from the state, including service of process and other legal documents.
Ensures Against Unfair Advantages
Domestic entities already in Florida must comply with certain regulations, including tax and reporting requirements. Without a legal process in place to register and confirm their presence, foreign entities might be able to slip under the radar and avoid those steps. Understandably, this would put domestic corporations and LLCs at a financial and operational disadvantage.
By making qualification mandatory, state governments can ensure that both domestic and foreign entities are subject to the same restrictions and regulations.
Steps to Florida Foreign Qualification
If your business must foreign qualify and you fail to do so, you could face a number of hefty fees and other penalties. Here are the four basic steps you’ll need to complete.
1. Name Availability Search
First, you need to make sure the business name you’re currently using isn’t already registered as a business name in the new state (e.g. Florida). To be considered legally available, the name must meet one of these two qualifications:
- Not already registered under the Secretary of State or similar filing office
- Not deceptively similar to another name already in the state’s records
If your business name is available, go ahead and reserve it. If it’s unavailable, you’ll have to qualify with and use a fictitious name in Florida.
2. Designate a Registered Agent
Second, choose an official point of contact for the office you plan to set up in the new state. The office from where the registered agent will work is known as the registered office.
Most entities opt to appoint a professional registered agent rather than choose an employee, owner, or stakeholder from the company. This person will handle important, confidential documents and forward them quickly to people who can act on behalf of your organization.
Boyer Law Firm’s foreign qualification package includes Registered Agent services to offer your company piece of mind in operating a business in Florida.
3. Order a Certificate of Existence and Good Standing
Third, you’ll need to order a Certificate of Existence or Certificate of Good Standing from your company’s home state. This document confirms that your company has met all of the requirements for business entities in its state of formation.
Reasons why you wouldn’t be considered “in good standing” include:
- Failing to file annual reports
- Failing to pay your franchise taxes
4. File Foreign Qualification Documents
Your last step is to complete and file an application for a Certificate of Authority in the state you want to enter. In this case, you’ll file it in Florida. There are also fees associated with this process.
While each state will have its own form, some of the information you’ll need to share includes your company name, date and state of incorporation, address, management type, and more.
Legal Guidance for Corporate Expansions
For many companies looking to expand, foreign qualification is the simplest and most straightforward way to do so. Yet, it’s not your only option. Depending on your circumstances, you may consider incorporating your business in Florida or forming a new LLC here.
The main difference is that by doing so, you essentially create separate business entities in each location, and this approach comes with its own set of considerations. Before you take this next step, reach out to our office.
We’re experts in business and commercial law, and we can help you decide which route is best for you. We’ll also help you navigate the process once you’re ready to begin. Contact us today to schedule a consultation!